Testing the System

Apr 1, 2002

Several countries in Latin America have modernized their corporate bankruptcy proceedings. But it is not yet clear the extent to which the reforms have established the flexibility needed to resolve complex default cases.

Argentina's financial collapse and global recession are testing
the solvency of highly leveraged companies in Latin America and
regional corporate defaults are certain to grow. Despite a
decade of reform, the judicial systems of many Latin American
countries still lag far behind the US and Europe when it comes
to bankruptcy procedures.

Unlike the 1980s Latin American debt crisis, which ended
with the Brady plan that restructured sovereign loans into
bonds backed by the US Treasury, debt crises in Latin America
now are likely to involve a much larger volume of debt from the
private sector and by association, equity and bond
investors.

Bankruptcy reforms of the past decade in Latin America to
some extent reflect modern commercial practices and the new
role of creditors. Mexico, Argentina, Chile and Colombia have
all passed reforms that aim to set a fairer balance between the
rights of creditors and those of...